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The UK and most of the world's economies are increasingly unsustainable, unfair and unstable. It is not even making us any happier – many of the richest countries in the world do not have the highest wellbeing.

He’s been at least more cautious since
then, warning of future financial crashes. But he’s very likely to be proved
wrong on this latest forecast. He points to the growth of manufacturing and
services sectors over the last year as proof the economy’s underlying health.
Stagnation of the whole economy over the last year was, he says, driven by a
sharp shrinking of the construction industry. The rest of the economy appeared
healthier.

But look just a little closer and that
rosy glow starts to turn pallid. It’s true that both manufacturing and services
output expanded over the last year. The important question for future
prospects, however, is how that growth occurred. There are, in
the end, two ways to generate growth: you either push more inputs into the
system, or you make those inputs work harder. In developing countries, the
former is most important. China’s economic growth over the last three decades
has depended critically on its ability to draw immense numbers out of
agriculture and into more modern industry. This is extensive growth.

For large, developed economies like the
UK, however, it is intensive growth that matters. They must
make a their economic inputs, one way or another, work more productively –
squeezing more production out of each input supplied. Productivity must
increase to drive growth.

The UK, over the last year, has achieved
precisely the opposite trick. Latest figures from National Statistics show
that productivity both manufacturing and services industries fell over the last
year. Services output per hour worked is down 0.2 per cent on a year ago.
Manufacturing output per hour is down 5.1 per cent. The situation in services is
worse than this suggests: while manufacturing productivity has risen since the
crash (falling only over the last year), services productivity has slumped and
remains below its 2008 peak.

The economy is going backwards. Firms have
compensated for this decline by pushing hard at real wages and salaries,
attempting to reduce their costs. This has not been successful. Cuts in real
earnings have not been sharp enough to compensate for falling productivity. The
result is that the labour cost per unit of output, the unit labour cost, has continued to rise: up 4
per cent for the whole economy for the last year. The implication is that
employers will be looking to cut wages and salaries still further;
alternatively, that unemployment will rise far above its current levels. And of
course, with real incomes falling, households will continue to reign in their
spending - reinforcing the slump.

This slide in productivity is
unprecedented, at least since the Second World War. It suggests far deeper
causes to the slump than King appears to think. It means that ending the
recession cannot be achieved through ending austerity alone. There are clear
and rising barriers to the blind pursuit of growth. Deeper changes will be
required if we are to see a return to anything like prosperity for most:
writing off debts, brining finance under public control, a green industrial
strategy that reduced dependency on imports, and redistribution.